…Mr. Reid’s office is considering language that would allow only existing casinos, horse tracks and slot-machine makers to operate online poker websites for the first two years after the bill passes, which could limit the ability of other companies to enter the market.

Carving out this fast-growing market for established gambling service providers sets off my protectionist alert. The cosy little cartel wouldn’t just exclude domestic potential competitors; I wrote a short paper a few years ago on how the UIGEA got the United States into hot water with the World Trade Organization, and the same arguments apply today. The United States still – despite vague, and so far empty, talk about changing its commitments with WTO members – has an obligation under the General Agreement on Trade in Services to open its market to online gaming operators abroad.

Politico has more about the groups supporting this move, suggesting (as are many Republicans opposed to internet gambling) that Reid has seen religion on online poker in direct response to the campaign contributions he received from gambling interests. I’m not so much interested in that angle –politicians responding to special interests is hardly news – as I am in the substance of what the legislation is proposing. And if the following reporting from Politico is accurate, the substance is troubling enough :

The National Indian Gaming Association is opposing Reid’s effort to insert the online poker language in any tax cut bill, said an official with the group, Jason Giles. He asserted it gives an advantage to Las Vegas-based gambling operators while discriminating against tribal operators.

“It is drafted to create an initial regulatory monopoly for Nevada and New Jersey for the first several years of the bill, which gives Las Vegas operators time to capture the market,” he said.

A gambling industry insider familiar with Reid’s efforts said Republican-leaning Vegas casino moguls Steve Wynn and Sheldon Adelson, while generally supportive of Reid’s legislation, take issue with provisions that could allow companies that previously operated in violation of online gambling laws to cash in.

The UIGEA is/was a nightmare for online operators to work around, partly because it never really defined “unlawful internet gambling.” Therefore, I am not sure how one would determine unambiguously whether a company “operated in violation of online gambling laws”. The UIGEA referred to transactions processors rather than gambling companies. And in any case, a few European operators (PartyGaming most famously) withdrew from the U.S. market at the time the UIGEA passed, just to be safe, and yet have continued to face prosecution. The European firms are at the cutting edge of online gaming services. Of course Messrs. Wynn and Adelson would want them out of the picture, but legislators should resist their attempts.

While Reid’s proposal may be an improvement on the status quo, it falls far short of restoring the full freedom of consenting adults to use their money, time, and online access in a manner of their choosing. It also is a long way from allowing a competitive, open market in gaming services to thrive. We should see this as a step in the right direction, but not the end game.

The House Financial Services Committee voted 41-22 yesterday to report a bill legalizing online gambling out of committee and onto the House floor for a vote, should the Democratic leadership choose to pursue it (Wall Street Journal [$]). This is heartening news.

“I think the penny has dropped,” said Simon Holliday, an analyst at H2 Gambling Capital. “They deregulate a little bit, like what happens and deregulate more. The governments get more addicted to the tax than the players to the games.

Some lawmakers also support this legislation because they recognize that many leading online gambling firms are European – partly because of fewer restrictions that have allowed the firms to flourish– and seek to create “American jobs for American workers” by promoting a domestic online gaming industry. The NYT article offers some sobering words for them, too, by pointing out that the Europeans are way ahead in this field. Not that the national origin of the gaming firm should matter, of course.

The Justice Department is on the job. Perceiving a dire threat against the American republic, they have acted to keep America safe. As my colleague Sallie James noted yesterday, they are stealing confiscating the money of Internet gamblers.

Just when it seemed that those in power had begun to think about Internet poker in a positive light, the Department of Justice throws us back into the digital dark ages by seizing $34 million in funds rightfully owned by around 27,000 online poker players. The government is alleging that the funds are associated with illegal online gambling and money laundering.

In a letter sent to Alliance Bank, the prosecutor said accounts held by payment processor Allied Systems Inc. are subject to seizure and forfeiture “because they constitute property involved in money laundering transactions and illegal gambling offenses.” The letter was signed by Arlo Devlin-Brown, assistant U.S. attorney for the Southern District of New York.

Knowing that the federal government is busy violating our privacy and grabbing our money to save us from ourselves just makes one feel great to be an American

From The Wall Street Journal today, an article about the federal freezing or seizing of 27,000 online gambling accounts (including that of one of my colleagues, who shall remain nameless but is $150 short today).

I blogged a few weeks ago about some (admittedly very dim) light on the horizon so far as the freedom to gamble online is concerned, but this is a setback indeed. The Poker Players’ Alliance (a lobby group for online poker players) says this is the first time that players’ accounts (as opposed to the gambling site operators themselves) have been targeted.

Following up from my blog entry last week on Rep. Barney Frank’s (D, MA) efforts to reduce restrictions on Americans’ freedom to gamble online, it seems that the prospect of more tax revenue has made some folks see religion.

An article from Texas Insider has details on the political shenanigans needed to get this bill passed, including an associated bill introduced by Rep. Jim McDermott (D, WA) to tax (at a rate of 2%) the deposits into online gambling accounts. Apparently, that could provide up to $43 billion in tax revenue over 10 years. For the children.

Apparently, Rep. Frank believes that [Treasury Secretary] Timothy Geithner can do a better job at enforcing our nation’s criminal laws than the Department of Justice, which is scary considering [Geithner’s] track record on complying with the tax code,” he said.

(he is referring to the Frank bill’s proposal to shift responsibility for the licensing and regulation of online gambling companies to the Treasury)

Following on from the mildly good news of a few weeks ago, Barney Frank (D, MA) has announced that he will introduce a bill tomorrow to roll back current restrictions on gambling online (the restrictions are made operative by bans on U.S. banks from processing transactions to and from gambling websites). Although the details of the bill are yet to be released, this here article contains some good analysis.

Semi-good news for lovers of civil liberties and the rule of law. PartyGaming, a UK -based internet gambling company, has reached a deal with the Department of Justice. In exchange for a $105m “fee”, prosecution proceedings against PartyGaming will be dropped.

Why am I only partially excited by this development? Although I think that dropping the case is a positive move, PartyGaming withdrew from the U.S. market when the Unlawful Internet Gambling Enforcement Act was passed, so the case against the company (and therefore its punishment) is, in this non-lawyers opinion at least, dubious. The Wall Street Journal alludes to the retroactive nature of the DoJs case here:

After almost two years of discussions, the U.S. Attorney’s Officer for the Southern District of New York has agreed not to prosecute PartyGaming or any of its subsidiaries for providing internet gambling services to customers in the U.S. prior to the U.S. government banning the online gambling industry in October, 2006.” [italics mine]

Aside from their assault on civil liberties, U.S. laws on internet gambling go against the spirit and the letter of WTO law, and undermine the international trading system that has on balance served the United States well (see more here and an FT piece on the announcement here).